Estimated read time: 6 minutes
🚀 Key Takeaways
Point 1: September 30 is a checkpoint—not automatically your accounting year-end. The federal fiscal year runs from October 1 through September 30, but a contractor may use a calendar year or another fiscal year for its accounting records and applicable indirect-cost submissions.
Point 2: Review contracts and accounting together. Funding, billing, labor, indirect rates, and unallowable costs should be reviewed as connected parts of the same financial picture.
Point 3: Turn open items into assigned actions. A useful review identifies the issue, responsible owner, next step, and target date so unresolved items do not disappear into the new federal fiscal year.
Introduction: Why Federal Fiscal Year-End Matters to GovCons
September 30 receives considerable attention across the federal market because it closes the federal government’s fiscal year. Agencies may be finalizing awards, exercising options, modifying contracts, or obligating available funds. For government contractors, this period can create both opportunity and financial risk.
The accounting challenge is that the information needed to understand a contract may be spread across several systems. Timekeeping records may sit in one platform, payroll in another, contract documents in a shared drive, invoices in a government portal, and financial data in the general ledger. If those records are not reconciled, management may be making decisions from incomplete or inconsistent information.
A federal fiscal year-end review brings those pieces together. It helps management understand what is funded, what has been performed, what has been billed, what remains unresolved, and where accounting cleanup is needed before October.
The Core Concept: Federal Fiscal Year-End vs. Contractor Fiscal Year-End
The federal government’s fiscal year runs from October 1 through September 30. That does not mean every government contractor must close its accounting books on September 30.
For example, FAR 52.216-7 ties an applicable final indirect-cost-rate proposal to the end of the contractor’s fiscal year. A calendar-year contractor subject to that clause would generally focus that annual submission timeline on December 31—not September 30.
| Review Area | Strong GovCon Practice | Risky Practice |
|---|---|---|
| Fiscal-year distinction | Treat September 30 as a federal-market checkpoint while following the company’s established accounting calendar. | Assume every contractor accounting requirement resets on September 30. |
| Contract funding | Reconcile funded amounts to executed contracts and modifications. | Rely on total award value or informal funding discussions. |
| Billing | Identify unbilled, rejected, and outstanding invoices by contract. | Review revenue without tracing it to billing and collection status. |
| Labor | Reconcile timesheets, labor distribution, payroll, and the general ledger. | Allow unexplained labor differences to accumulate. |
| Indirect rates | Compare actual year-to-date rates with budgeted and applicable billing rates. | Calculate rates only when a proposal or audit is due. |
| Unallowable costs | Identify and segregate applicable unallowable costs as transactions are recorded. | Wait until year-end or an audit to find them. |
How to Complete a Federal Fiscal Year-End Financial Review
1. Confirm contract value, funding, and period of performance
Start with every active contract and task order. Record the total value, current funded amount, costs incurred, amount billed, period of performance, open options, and pending modifications.
Do not treat total contract value as available funding. An award may include incrementally funded work, unexercised options, or future task orders. Use executed contract documents and modifications as the authoritative support for the funded position.
For cost-reimbursement contracts containing FAR 52.232-20 or FAR 52.232-22, review the actual notice language and monitoring thresholds. These clauses can require written notification as costs approach specified levels. Finance and contract teams should monitor those requirements before funding becomes critical.
2. Review billing, receivables, and unbilled work
Compare work performed and revenue recorded with invoices submitted. Then categorize every material unbilled amount.
Common categories include normal timing, missing support, an unmet milestone, a pending modification, a funding issue, a rejected invoice, or an accounting correction. The goal is not to eliminate every unbilled balance. It is to understand why each balance exists and when it should convert to billing and cash.
Review accounts receivable at the same time. A submitted invoice is not the end of the cash cycle. Track approval, rejection, aging, disputes, and expected payment dates.
3. Reconcile the labor trail
Review the complete sequence:
Timesheets → Labor distribution → Payroll → General ledger → Job-cost reports
Confirm that time was approved, direct and indirect codes were used consistently, labor dollars were distributed to the correct cost objectives, and payroll reconciles to recorded labor. DCAA’s accounting-system materials specifically emphasize timekeeping, labor distribution, project accumulation, and reconciliation to payroll and the general ledger.
Investigate differences instead of using an unsupported journal entry to force agreement. A valid correction should identify the cause, supporting records, affected contracts, and approval.
4. Recalculate and forecast indirect rates
Calculate actual year-to-date fringe, overhead, and G&A rates using the contractor’s established pools and allocation bases. Compare the results with budgeted rates, pricing assumptions, and applicable billing rates.
A rate can increase because expenses rise, because the allocation base falls, or both. Understanding the driver matters. Lower-than-expected direct labor, hiring delays, benefit increases, or changing contract mix can materially affect rates even when spending appears stable.
5. Review potentially unallowable costs
Inspect higher-risk accounts and supporting documents for costs that may be unallowable under applicable contract terms or FAR cost principles. FAR 31.201-6 requires applicable unallowable costs—and certain directly associated costs—to be identified and excluded from relevant Government billings, claims, and proposals.
The accounting system should still record these legitimate business transactions. The control objective is clear identification and segregation, not omission from the books.
Federal Fiscal Year-End Close Checklist
- Confirm active contracts, funded amounts, and periods of performance.
- Update executed modifications in accounting and project systems.
- Review limitation-of-cost or limitation-of-funds notices where applicable.
- Identify unbilled work and rejected invoices.
- Review accounts-receivable aging and collection status.
- Reconcile timesheets, labor distribution, payroll, and the general ledger.
- Calculate actual indirect rates and update the forecast.
- Review potentially unallowable costs and related documentation.
- Assign every open issue an owner, next action, and due date.
- Carry unresolved items into an October management tracker.
👉 Watch the related YouTube Short: https://www.youtube.com/@vsinghcpallc
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What’s Next in the Series
✅ Episode 1: Federal Fiscal Year-End Checklist for Government Contractors
2️⃣ Episode 2: Federal Fiscal Year-End: What GovCons Should Review Now
3️⃣ Episode 3: Starting FY2027 Strong: Review Contract Funding, Backlog & Burn
4️⃣ Episode 4: Reconcile Timesheets, Payroll & Labor Distribution
5️⃣ Episode 5: Unallowable Costs: What GovCons Should Clean Up Before Year-End
6️⃣ Episode 6: Review Your Indirect Rates Before They Hurt Your Margins
7️⃣ Episode 7: Billing, WIP & Unbilled Revenue: Your GovCon Year-End Review
8️⃣ Episode 8: How to Build Your 2027 GovCon Financial Plan